Feds pooh-pooh Softbank/Sprint deal over Chinese hardware fears

U.S. regulators may gum up the works in the proposed acquisition of Sprint by Softbank with requests to approve network hardware deals. Said hardware could bring Chinese spyware into play in U.S. networks, they fear.

The Wall Street Journal is reporting this morning that several sources close to the deal say feds might ask for oversight on network equipment purchases. Softbank will also be asked to comply with future U.S. government requests any time national security questions come up, the sources said.

The Sprint/Softbank deal is worth $20 billion and first came to our attention last fall. Sprint confirmed that it’s selling 70 percent of the company to Japan’s Softbank for $20.1 billion. As part of the deal, $12.1 billion will be paid out to Sprint’s existing stockholders, while the remaining $8 billion will be new capital for the carrier. The cash infusion should help Sprint with debt management and is expected to close in the middle of 2013.

China itself has become a hot topic for technologists. First, it was the widespread banning of online content for web users in the PRC and the IP violations in copycat hardware and software. Then, it was the string of high-profile hacking attempts launched by the Chinese government and ongoing back-and-forth snipes between the country and Apple.

But it’s the cyberwarfare that has the U.S. government so concerned right now. Just last week, U.S. national security adviser Tom Donilon said the U.S. needs three things from China: a recognition of how serious the current cybercrime situation is, action from Beijing to stop the attacks, and a chance to create “acceptable norms of behavior” in online business.

“Increasingly, U.S. businesses are speaking out about their serious concerns about sophisticated, targeted theft of confidential business information and proprietary technologies through cyber intrusions emanating from China on an unprecedented scale,” said Donilon.

“From the President on down, this has become a key point of concern and discussion with China at all levels of our governments.”

Those concerns are evident in today’s news, as well. While the government can’t interfere with free trade by, say, blocking hardware purchases from specific, Chinese vendors, officials can demand enough oversight to make such purchases very difficult and ultimately not worth it from a business perspective.